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Choice of Optimal Instruments for Boosting Food Sufficiency – the case of agricultural input

Choice of Optimal Instruments for Boosting Food Sufficiency – the case of agricultural input subsidies in Senegal. CABRI SECTOR DIALOGUE: SENEGAL CASE STUDY. CABRI SECTOR DIALOGUE Dakar, Senegal July, 2013. Presentation Outline. Introduction Overview of Senegal’s Agricultural Sector

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Choice of Optimal Instruments for Boosting Food Sufficiency – the case of agricultural input

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  1. Choice of Optimal Instruments for Boosting Food Sufficiency – the case of agricultural input subsidies in Senegal CABRI SECTOR DIALOGUE: SENEGAL CASE STUDY CABRI SECTOR DIALOGUE Dakar, Senegal July, 2013

  2. Presentation Outline • Introduction • Overview of Senegal’s Agricultural Sector • Government and Development Partner Spending on Agriculture between 2002 - 2009 • Government Instruments of Agricultural Support along the Production Chain • Implementation of Agriculture Subsidies • Impact of Agriculture Subsidies: Micro Evidence from Sample Survey AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  3. Introduction • Senegal’s Food Insecurity led to an unprecedented food crisis in 2007 • Government of Senegal (GoS) Response in 2008: GOANA or Grande Offensive Agricole pour la Nourriture et l’Abondance (Great Agricultural Offensive for Food and Abundance) with an estimated total cost of FCFA345 billion ($803.85 million) • Aim of GOANA: • To put Senegal on a pathway to attain food sufficiency by 2015 • 3 Broad Measures • the expansion of the cultivated areas with a particular focus on irrigated land, • the diversification of staples, namely corn, cassava, rice, and • greater access to agricultural inputs and equipment. • CASE STUDY FOCUS: Access to agricultural inputs and equipment • Specifically 3 questions: • Are input subsidies fiscally sustainable as an instrument for food sufficiency? • Is the subsidy program well structured (design, targeting, risk etc)? • Do the observed results/impact justify the cost (value for money)? AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  4. Overview of Senegal’s Agricultural Sector • Plays a Crucial Role in economic and social context; Employs a large majority of the labor force • Dominated (95%) by subsistence farming • Only 5% agribusiness (horticulture and arboriculture) and industrial agriculture (groundnut and cotton), for urban market Dakar and export markets • Heavily dependent on Sahelien region rain and climatic conditions • High Food Insecurity • Chronic deficits of the commodity trade balance • Heavily reliant on foreign supply thus vulnerable to external market shock, price hikes • Malnutrition affects 21% of total population (3 mill) • Absolute rise in the # of malnourished AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  5. Profile of Senegal’s Agricultural Sector • Main Agricultural Commodities: Groundnuts, rice and millet made up 40% total agri produce in 2011 • But declining production of cash crops • Agricultural Growth very volatile: Between 2001 and 2011 range -22% (2002) and 20.5% (2003)2011 was the most recent contraction of agriculture • Low productivity Source: FAO Stat (online) Economic growth fueled mostly by growth in the service sector vs. mainly stagnant agric sector Source: World Development Indicators (Online) AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  6. Government and Development Partner Spending on Agriculture have risen significantly 2002 - 2009 • GoS Spending • Spending has risen significantly 2002-09 • 3 fold increase FCFA 55.1bn – 170.2bn • Structural shift towards more pro-cyclical capital spending since 2004 • During budget crisis, capital spending decreased by 40% while non-captial spending continued to rise • BUT • Spending falls short of Maputo Declaration • GoS has only slightly crossed the threshold in two years (2007 and 2009) • Between 2002 – 2009 – Avg share was lower than commitment 9.7% Source: DAPS, Ministry of Agriculture, Senegal • Development Partner Spending • Spending has risen significantly 2002 – 09 • 74% increase FCFA 40.7bn – 70bn • 41% of total agric spending • More reliable source even during the financial crises; only marginal effects, rising since 2005 AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  7. Instruments of Agricultural Support along the Production Chain (1) AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  8. Instruments of Agricultural Support along the Production Chain (2) AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  9. Instruments of Agricultural Support along the Production Chain (3) BUT PROBLEM OF LEAKAGES AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  10. The Implementation of Agriculture Subsidies in Senegal • Major reforms to reach food sufficiency • Great Push Forward for Agriculture, Food and Abundance or Grande Offensive pour l’Agriculture, la Nutrition et l’Abondance (GOANA) • Return to Agriculture or Retour versl’Agriculture (REVA) –designed to promote agriculture and tackle rural migration and emigration • Main Instruments for Agricultural Support: Based on assumption that these are the major constraints to production • Supply of more agricultural equipment • Subsidized seeds to farmers • Making additional land available to farmers at no charge • But subsidies have been the main component of GoS support to agriculture 2001 - 2011 • Subsidies increased from a meager FCFA 75 million in 2001 to FCFA 36.3 billion in 2011, a 484-fold nominal increase in this 10-year period • Fertilizers were the main target (30%) of the total subsidy amounts • 2011/2012 campaign FCFA 30.9 billion was necessary to subsidize various agricultural inputs AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  11. Impact of Subsidies: Micro-evidence from Sample Survey • In June 2013, a team of surveyors interviewed 183 farmers who received the fertilizer subsidy and those that did not in the agricultural area of the Senegalese River valley. • Characteristics of Sample • Scattered over three rural communities • Mostly small-scale, subsistent farmers who were owners of the land for three decades • Access to some form of irrigation, low access to finance, limited access to storage facilities • Diversified Farming Activity (Rice (mostly 66%), onions and tomatoes) • Mostly limited education (53.3%) (barely attained primary or secondary level education (48.9%) • Mostly part of farmers unions (85.5%) Extent of Government Support Focus on Rice producers AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  12. Relationship between Subsidy and Rice Farmer Productivity • Similar profiles but • Notable difference between the quantity of fertilizers used and productivity. • Farmers who used fertilizers and received a subsidy are associated with higher use of fertilizers and have higher rice yield. • BUT RELATIONSHIP IS NOT CAUSALITY Source: Survey data, June 2013 • A comparison between the share of fertilizer subsidy recipients and the natural logarithm of rice productivity suggests that: • the difference in productivity between producers who receive 100% subsidy and those that receive 10% is negligible BUT PROBLEM OF LEAKAGES AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  13. Discussion Questions • Are input subsidies fiscally sustainable as an instrument for food sufficiency? • Is the subsidy program well structured (design, targeting, risk etc)? • Do the observed results/impact justify the cost (value for money)? • Leakages/Spillovers???? AFRICAN CENTER FOR ECONOMIC TRANSFORMATION

  14. www.acetforafrica.org

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